The Bank of England's latest assessment of the UK economy, the Inflation Report, was just released.

The central bank cut its GDP forecast for the year — the UK is now expected to grow by 2.25% instead of 2.5% as expected in February.

That's because the Bank of England is finally starting to get real about the UK's dismal labour productivity situation. For years, the UK economy has added jobs mainly in low-skilled work: waiters, baristas, retail checkout jobs and the like. The hope was that as growth gained momentum, the economy would transition and start adding the high-skilled, high-productivity, high return-on-investment jobs that really spur wage growth and overall GDP growth.

That didn't happen.

The Bank has been overly optimistic productivity for a while, and now it's admitting it was wrong: The Bank cut its forecast for productivity growth this year to 0.25% from 0.75%, and for next year from 1.5% to 1.25%.

These are more realistic figures — but they may still be too high. Even in 2016 the Bank expects productivity growth of just 1.75%, significantly below the 2.75% average in the 10 years running up to the crisis.

That will have a knock-on effect for wages — the Bank has now abandoned its very optimistic 3.5% forecast for wage growth this year, snipping that to 2.5%. Household consumption got a similar treatment, with a forecast cut from 3.75% to 2.75% this year.

This chart shows you why. Note that the green and blue sections are now going in the opposite direction to each other:

Job growth in recent years has been extremely strong, but it's due in significant part to low and medium skilled jobs. Note that the green bars on the diagram — low-skilled workers — are growing but the blue bars — high-skilled — are actually in decline.

That's still mostly good news, contrary to some pessimistic sniping. Unemployment is bad for the economy and can be awful for the long-term prospects of the individual unemployed people.

But unemployment isn't going to go on falling forever, and at some point the UK's growth will have to come from somewhere other than adding low-skilled workers if it's to continue. That somewhere should be productivity — some sort of rebound is crucial for the country.

Here's the section of the report that should worry people:

Weaker investment not only in physical but also 'intangible' capital such as employees' skills, may have reduced the pace of innovation and hindered companies' ability to adopt more innovative processes. Indeed, Bank staff analysis suggests that TFP [total factor productivity] has grown more slowly than in some other advanced economies‎, notably the United States."

Those suggestions aren't the Bank's central forecast, but if they're true the UK has big problems that Bank governor Mark Carney cannot solve. We just don't have — or aren't employing — the workers we'll need to grow more robustly in the future.

There's still very little concern about deflation for the UK. The Bank says the possibility of "adverse consequences" like delayed consumption and increased difficulties in paying off debt are "highly unlikely" for the UK, noting that if they thought it was likely they have "the tools to bring inflation back to target," meaning that they're not afraid to turn the QE taps back on if necessary.